The climate risk to your business

To cut emissions and avert extreme climate change, societies and economies will have to make big changes in how they operate. Experts at a recent seminar discussed why businesses must play their part.

An airplane is partially submerged by floodwaters in Bangkok, Thailand, in 2011. Climate change impacts can cause hundreds of millions of dollars of losses to businesses. Image: Onizu3d / Shutterstock.com

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Measures to reduce carbon emissions, such as shifting to renewable energy, may be costly and difficult to implement, but businesses must do so urgently because climate change is already threatening their profits and operations, said sustainability experts on Tuesday.

Japanese carmaker Honda for example lost US$250 million in 2011 when floods destroyed its car assembly plants in Thailand. Profits of Re-insurer Munich Re declined 38 per cent after it had to pay out more than US$350 million in claims because of the 2010 to 2011 Australian floods.

While there are no quick and simple solutions that can deliver major emissions cuts, Nick Rowley, senior consultant at sustainability advisory firm Robertsbridge, said that once businesses start to measure and report their efforts to reduce climate risks, other companies in the sector can adopt similar practices.

This snowball effect “is the dynamic that gives me hope to tackle climate change”, he told 30 guests at a seminar on the business response to climate change, held on the sidelines of the Responsible Business Forum on Sustainable Development at Sands Expo and Convention Centre.

Also speaking at the discussion, Jeanne Finestone, strategic communications, advocacy and marketing lead for the United Nations Development Programme’s Business Call to Action initiative said that businesses must also prove that they can cut emissions and still stay profitable.

Balancing profit with sustainability “is the only message businesses will hear”, she added.

Danish shipping conglomerate Maersk is one firm which convinced engineers and managers who were more concerned about the bottom line to support sustainability efforts by linking fuel use to emissions, and therefore, costs.

The company, responsible for about 0.1 per cent of all global emissions, cut down its carbon footprint by improving the energy efficiency of its vessels and ensuring that their hulls were always clean enough to sail smoothly, among other measures. The growth of barnacles on the hull tends to increase drag on the ship.

Justin Gadbois, the company’s Asia Pacific head of sustainability, said that such measures have reduced fuel use and costs for Maersk, and “frankly, that’s one of the only ways we’ve been able to stay profitable”.

But not all companies place a similar emphasis on sustainability performance, said Rowley.

Despite the importance of sustainability measures such as energy and water use, companies do not prioritise them when they make make decisions, he said. Firms may think it is too costly to invest in sustainability measures, but doing so is crucial to their long-term success, he said.

Statistics on energy, water, and resource savings have to become “the second most important metrics, after profits, asked around all boardroom tables,” he noted.

Banks also have a crucial role to play in financing the transition to a low-carbon economy, said participants.

William Kwende, chairman of global conglomerate Agritech Group, shared how a project to equip smallholder farmers in West Africa with the skills and technology to set up water-saving drip irrigation systems on their plots was stymied because no private bank would manage the many micro-loans given out to these farmers.

“Yes, the transition to a low-carbon economy is expensive and time-consuming,” he noted. But in order to bring water and energy-saving solutions to masses of people, banks have to play their part, he urged.

Dutch multi-national ING bank is one institution that says it has made sustainable financing a priority.

Herry Cho, vice president, ING Bank, said that the bank will not fund coal projects unless it is an exceptional circumstance of clean coal. Instead it is putting more effort into funding the transition to renewables.

For example, although it is challenging to arrange financing for a solar project, it does so anyway. These deals can be tricky because the industry’s business models - such as solar leasing - are sometimes complicated, and countries have different policies on how solar energy can be integrated into the grid.

At the same time, the renewable deals contribute little to bank’s profits, making them unwilling to finance such projects.

“But we say, let’s do this, because it’s going to make a difference, and reflects a strong stance on sustainability,” she added.